Generally Accepted Accounting Principles (GAAP)
GAAP: This is an abbreviation of Generally Accepted Accounting Principles that are standards and guidelines established by the Financial Accounting Standards Board (FASB) an independent, self-regulatory board that establishes and interprets generally accepted accounting principles. It operates under the principle that the economy and the financial services industry work smoothly when credible, concise, and clear financial information is available. FASB periodically revises the GAAP to make sure corporations are following its principles. The corporations are supposed to fully account for different kinds of income, avoid shifting income from one period to another, and properly categorize their income. Currently there are over 150 pronouncements defining how different types of transactions are to be recorded. The financial statements of companies reporting according to GAAP can be compared because the data is consistent by definition.
